glossary of technical analysis terms

For pertinent disclosures, please see last page. See RBC’s research at www.rbccm.com.

Global FX Strategy

02 January 2007

Glossary of Technical Analysis Terms Introduction

Although there are many approaches utilized to forecast individual asset prices in financial markets, fundamental and technical analysis are two disciplines among the most commonly used.

In this publication, we seek to provide staff and clients alike with a glossary of technical terms that are often used in our reports. Each term is accompanied by a brief definition, along with an associated chart to depict the term.

The glossary is meant to serve as a quick reference guide for readers when they require clarification of a term.

The Basic Tenets

Technical analysis is best defined as the use of charts in order to study market price activity. The ultimate objective is to use this information in order to attempt to forecast future price trends.

Key tenets that underpin the technical approach include the following:

• Market prices move in trends

• Market action reflects all known information that is available

• The past predictive value of price patterns that reflect the bullish or bearish psychology of the marketplace are assumed to apply in the future.

Technicals Versus Fundamentals

There are often many instances when technicals are compared and contrasted with the fundamentals. Table 1 provides a brief comparative synopsis of the two disciplines.

We must also point out that neither discipline is correct at forecasting price moves 100% of the time. Table 2 addresses the pros and cons of technical analysis in this regard.

While both approaches are often used to some degree by market participants, they tend to differ at the beginning of major market moves because market prices tend to lead the known fundamentals. Even for those who tend to rely on fundamental analysis to make their trading decisions, the technicals are often employed as an executional tool to highlight key support and resistance levels and to establish risk/reward parameters for proposed trading strategies.

1. Comparison of Technical Versus Fundamental AnalysisTechnical Analysis: 1) The study of price activity in an attempt to predict trends. 2) Instruments in an uptrend are candidates to be purchased; instruments in a downtrend are candidates to be sold. 3) The technician studies the anticipated effect of price movements. 4) Attempts to measure the projected effects of price moves. Fundamental Analysis: 1) The study of supply and demand in order to determine intrinsic value. 2) Instruments that are below intrinsic value are deemed undervalued and are candidates to be purchased; instruments that are above intrinsic value are deemed overvalued and are candidates to be sold. 3) The fundamentalist studies the cause of price movements. 4) Attempts to ascertain why prices have moved. Source: Technical Analysis of the Futures Markets; RBC Capital Markets

2. Technical Analysis: Pros and Cons Pros:

• Can be applied to all instruments that are traded. • Applicable to any time horizon (short, medium and long-term). • Established framework allows diverse markets to be followed at once. • Permits the focus on trending markets, as opposed to markets that are

not “moving”. Cons:

• May be a “self-fulfilling prophecy”. • Chart analysis can be subjective at times. • Not effective on consolidating or non-trending markets. • False breakouts can produce erroneous trading signals.

Source: Technical Analysis of the Futures Markets; RBC Capital Markets

02 January 2007 Global FX Strategy: Glossary of Technical Analysis Terms

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Types of Charts 3. Line Chart

Line Chart

The line chart consists of merely plotting the closing prices of an instrument over a chosen time period.

Implications: While this most basic chart is easy to construct, the open, high and low data is not plotted for consideration.

Source: Tradermade International Ltd.

4. Bar Chart Bar Chart

Vertically plotting the open, high, low and closing price of an instrument for a chosen time period will produce the bar chart.

Implications: This is the most commonly used chart by technicians and overcomes the weaknesses of the line chart by including open, high, low and close data for scrutiny.


Candlestick Chart 5. Candlestick Chart

The candlestick chart consists of plotting the open, high, low and closing values for an instrument. However, the difference between the opening and closing values forms the candle and is termed the “real body”. The wicks that protrude above and below the real body are termed “upper shadows” and “lower shadows” respectively. Hollow real bodies are usually used to represent days with a positive net change in price, while solid real bodies usually represent days with a negative net change in price.

Implications: A chart format that is increasing in popularity as the up and/or down days are more easily discernible.


6. Point and Figure Chart Point and Figure Chart

The point and figure chart records price changes that are defined by box size criteria. While “X’s” and “O’s” denote upmoves and downmoves respectively, prices must reverse by the amount of the box size in order to be plotted. The example in Figure 6 displays a point and figure chart for USD/CAD using a box size of 10x3. Therefore, each “X” or “O” represents a price move of 10 points, and prices must reverse by a minimum of 30 points (10x3 is termed the reversal amount) in order to be plotted.

Implications: A multidimensional chart format that disregards the time axis and concentrates on pure price movement. Periods of accumulation and distribution are easy to spot. Source: Tradermade International Ltd.

Global FX Strategy: Glossary of Technical Analysis Terms 02 January 2007

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Trend Concepts 7. The Uptrend

Uptrend

An uptrend consists of a series of ascending peaks and troughs that rise successively.

Implications: Markets that display the characteristics of an uptrend are candidates to be purchased.


8. The Downtrend Downtrend

A downtrend consists of a series of descending peaks and troughs that fall successively.

Implications: Markets that display the characteristics of a downtrend are candidates to be sold.


9. The Sideways Trend Sideways Trend

Markets that are in a sideways trend are often called “range trading” and feature a series of roughly level peaks and troughs. Markets actually spend up to 33% of time in this state.

Implications: Markets that display the characteristics of a sideways trend are candidates to be avoided until an uptrend or downtrend develops.


10. Trend Classifications Trend Classifications Short-term or minor trends: Up to 4 weeks in duration

While trend classifications will often differ amongst technicians, Figure 10 summarizes the classifications that we use the most in our analysis.

Medium-term or intermediate trends: One to three months in duration Long-term or major trends: Greater than six months in duration Source: RBC Capital Markets


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Support and Resistance 11. Support

Support

Support is denoted by a series of reaction lows or troughs under the market where demand is sufficient enough to overcome supply.

Implications: Support levels are expected to underpin the market and generate a rally in prices.


12. Support – Role Reversal Support – Role Reversal

Once a support level is penetrated, it often reverses roles and serves as resistance on pending rallies.

Implications: After the role reversal takes place, the prior support level becomes resistance and is expected to limit pending rallies that may result.


13. Resistance

Resistance

Resistance is denoted by a series of reaction highs or peaks above the market where supply is sufficient enough to overcome demand.

Implications: Resistance levels are expected to halt upward price moves and generate a decline in prices.


Resistance – Role Reversal 14. Resistance – Role Reversal

Once a resistance level is penetrated, it often reverses roles and serves as support during pending pullbacks.

Implications: After the role reversal takes place, the prior resistance level becomes support and is expected to limit pending pullbacks that may result.



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Trendlines 15. Up Trendline

Up Trendline

An up trendline is merely a straight line drawn off a succession of reaction lows, with three points required to form a valid trendline. The longer a trendline remains in place and the more times it is tested, the more significant it becomes.

Implications: Up trendlines serve as support and generate buying opportunities. Stop loss orders will likely be located below such trendlines, with a close below the trendline producing a bearish trend reversal.


16. Down Trendline

Down Trendline

A down trendline is merely a straight line drawn off a succession of reaction highs, with three points required to form a valid trendline. The longer a trendline remains in place and the more times it is tested, the more significant it becomes.

Implications: Down trendlines serve as resistance and generate selling opportunities. Stop loss orders will likely be located above such trendlines, as a close above the trendline would produce a bullish trend reversal.


Trendlines – Role Reversal 17. Trendlines – Role Reversal

Similar to support and resistance levels, trendlines also reverse roles once they are penetrated. Therefore, an up trendline will become resistance and a down trendline will become support after penetration.

Implications: Figure 17 illustrates the role reversal technique for a support trendline once it has been penetrated.



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The Channel Line 18. Ascending Channel and Bearish Trend Reversal

A channel starts out either in the form of a support or resistance trendline. Subsequent price action allows a parallel line to be drawn. These two parallel lines guide prices either higher or lower.

Ascending Channel

A channel that is rising as an uptrend remains in effect is referred to as an ascending channel.

Implications: The channel pattern will constrain price action to a rising range. Pullbacks to support can be used to initiate long positions, while the channel line can be used to take profit. Once the boundaries of the channel are penetrated, the price objective is the width of the channel measured from the point of penetration.

Descending Channel

A channel that is falling as a downtrend remains in effect is referred to as a descending channel.

Implications: The channel pattern will constrain price action to a falling range. Rallies to resistance can be used to initiate short positions, while the channel line can be used to take profit. Once the boundaries of the channel are penetrated, the price objective is the width of the channel measured from the point of penetration.


19. Descending Channel and Bullish Trend Reversal



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Moving Averages 20. Plot of 40-Day Simple, Linear and Exponential Moving Averages A moving average is the average of a number of data points

over a chosen time period. The data is smoothed and is used to identify the beginning or termination of a trend. The moving average does not anticipate price movement; rather, it reacts to price movement.

Types of Moving Averages

• The simple moving average is commonly referred to as the arithmetic mean: it is the sum of all values for a chosen period divided by the number of observations.

• The linear moving average is an average of observations for a specified time period, with each observation assigned a weighting.

• The exponential moving average is not only a weighted average that assigns a greater weight to more recent observations, but it also includes all data in a given sample.

Source: Tradermade International Ltd. Implications: Important moving averages such as the 40, 55 and 200-day moving average often become support and resistance areas and are also used to identify trend reversals.

40-day simple = blue line

40-day weighted = red line

40-day exponential = green line

21. Single Moving Average Crossover Single Moving Average Crossover

A buy signal is generated in the context of a single moving average crossover when the closing price of an instrument moves above the selected moving average. Conversely, a sell signal is generated when the closing price moves below the moving average.

Implications: A bullish crossover can be used to implement long positions, while a bearish crossover can be used to reverse positions and to initiate a short position.


Double Crossover Method 22. Double Crossover Method

A buy signal is generated as part of the double crossover method when the shorter moving average closes above the longer moving average. This is often referred to as “the golden cross”. Conversely, a sell signal is generated when the shorter moving average closes below the longer moving average. This is often referred to as “the death cross”.

Implications: The “golden cross” can be used to implement long positions, while a “death cross” can be used as a take profit and to initiate a short position.



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Continuation Patterns 23. Symmetrical Triangle Pattern- Bullish

Continuation patterns usually indicate that consolidative price activity will resolve in the same direction as the trend that was in effect before the pattern formed.

Symmetrical Triangle

The symmetrical triangle is a continuation pattern that is formed by an ascending lower trendline and a descending upper trendline that converge. While this pattern can be bullish in an uptrend or bearish in a downtrend, a price breakout must occur before the three-quarter point of the triangle apex in order for this pattern to remain valid.

Implications: Once a bullish or bearish breakout materializes, the price objective is the vertical height of the triangle from its widest point, projected from the breakout point. Figure 23 illustrates a bullish symmetrical triangle.

Ascending Triangle

An ascending triangle is formed by a flat upper resistance line and an ascending lower support trendline that converge. With price action indicating that buyers are more aggressive than sellers (thus the rising support line), this pattern is bullish in nature.

Implications: Once a bullish breakout materializes, the price objective is the vertical height of the triangle from its widest point, projected up from the breakout point.

Descending Triangle

A descending triangle is formed by a declining upper resistance line and a flat lower support trendline that converge. With price action indicating that sellers are more aggressive than buyers (thus the declining resistance line), this pattern is bearish in nature.

Implications: Once a bearish breakout materializes, the price objective is the vertical height of the triangle from its widest point, projected down from the breakout point.


24. Ascending Triangle Pattern


25. Descending Triangle Pattern



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Flags 26. Flag Pattern - Bearish

A flag pattern is formed when prices pause during a very sharp market move. The period of consolidation is denoted by price activity that slopes against the previous trend before resuming in the same direction of the trend. The counter-trend pause results in the formation of parallel support and resistance trendlines. These patterns are normally short-term in nature and can be bullish or bearish.

Implications: Once the flag pattern has broken out, the price objective is said to be equal to the “flagpole” – which is the previous sharp advance or decline that took place. Figure 26 presents an example of a bearish flag pattern.


27. Pennant Pattern - Bullish

Pennants

A pennant pattern is also formed when prices pause during a very sharp market move. While the period of consolidation slopes against the previous trend before resuming in the same direction as the trend, the resulting support and resistance trendlines converge (as opposed to being parallel as in the case of the flag). Pennants are often short-term in nature and can be bullish or bearish.

Implications: Once the pennant pattern has broken out, the price objective is said to be equal to the “flagpole” – which is the previous sharp advance or decline that took place. Figure 27 presents an example of a bullish pennant pattern.


28. Rectangle Pattern Rectangle

A rectangle pattern denotes a period of price consolidation that represents a pause in the current trend. Although the resolution of the pattern is usually in the direction of the preceding trend, care must be taken to ensure that it does not turn into a reversal pattern (reversal patterns are covered in the next section).

Implications: While the range of the rectangle pattern may present a trading opportunity while prices consolidate, once prices break out of the rectangle pattern, the measured move objective is the vertical height of the rectangle projected from the breakout point.



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Rising Wedge 29. Rising Wedge Pattern

Although similar to a triangle pattern in shape, the rising wedge pattern differs by virtue of the rising slant of the pattern: the pattern slants against the prior downtrend as a series of narrowing higher lows and highs forms during a period of consolidation. In addition, while prices usually resolve the pattern two-thirds of the way to the apex, they may still move to the apex before breaking out. Price action is expected to resolve in the direction of the prior downtrend as part of the continuation theme.

Implications:

The rising wedge pattern is considered a bearish pattern in the context of a downtrend. The price objective is the height of the wedge from its widest point, projected from the breakout point.


30. Falling Wedge Pattern

Falling Wedge

The falling wedge pattern is simply a mirror image of the rising wedge. The pattern slants against the prior uptrend as a series of narrowing lower lows and highs form during a period of consolidation. Price action is expected to resolve in the direction of the prior uptrend as part of the continuation theme.

Implications:

The falling wedge pattern is considered a bullish pattern in the context of an uptrend. The price objective is the height of the wedge from its widest point, projected from the breakout point.



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Reversal Patterns 31. Double Top Pattern

Reversal patterns usually indicate that consolidative price activity will resolve in the opposite direction as the trend that was in effect before the pattern formed.

Double Tops and Double Bottoms

A double top (bottom) pattern features two price peaks (troughs) that occur at approximately the same level. This bearish (bullish) pattern is completed when prices break below the intervening lows (highs) that formed the pattern.

Implications: Once a breakout has materialized, the price objective of the double top (bottom) is the difference between the price peaks (troughs) and the intervening lows (highs), projected from the breakout point. Figure 31 illustrates a bearish double top pattern. Source: Tradermade International Ltd.

Triple Tops and Triple Bottoms 32. Triple Bottom Pattern

While less common than the double top or double bottom pattern, a triple top (bottom) features three price peaks (troughs) that occur at approximately the same level. This bearish (bullish) pattern is completed when prices break below the intervening lows (highs) that formed the pattern.

Implications: Once a breakout has materialized, the price objective of the triple top (bottom) is the difference between the price peaks (troughs) and the intervening lows (highs), projected from the breakout point. Figure 32 illustrates a bullish triple bottom pattern.


Head and Shoulders/Inverted Head and Shoulders 33. Head and Shoulders Pattern The head and shoulders pattern is one of the more popular and reliable technical price patterns. In an uptrend, prices experience a correction before rallying to new highs. This is followed by another retreat that stalls near the previous correction point. An ensuing, but feeble rally allows a support trendline to be drawn. This line is called the neckline. The penetration of the neckline produces the bearish resolution of the head and shoulders pattern – and a return price move fails against the neckline. The inverted head and shoulders pattern is merely the mirror image of the head and shoulders pattern – with bullish implications.

Implications: Once the neckline is penetrated, the measured move objective is the distance from the head to the neckline, projected from the breakdown point. Figure 33 illustrates a bearish head and shoulders pattern. Source: Tradermade International Ltd.


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Rising Wedge 34. Rising Wedge Pattern

As a continuation pattern, a rising wedge slopes against the prevailing trend (see page 10). However, in some instances, a rising wedge pattern may slope in the same direction as the prevailing trend. In this case, the rising wedge is considered as a bearish reversal pattern in the context of an uptrend. Prices may reach the apex of the wedge before resolving the pattern.

Implications:

The price objective is the height of the wedge from its widest point, projected from the breakout point.


Falling Wedge 35. Falling Wedge Pattern

As a reversal pattern, the falling wedge is simply a mirror image of the rising wedge. The pattern slants in the same direction as the prevailing trend. In this case, the falling wedge is considered as a bullish reversal pattern in the context of a downtrend. Prices may reach the apex of the wedge before resolving the pattern.

Implications:

The price objective is the height of the wedge from its widest point, projected from the breakout point.


36. Bullish Key Reversal Day Bullish/Bearish Key Reversal Day

A key reversal day can take place in an uptrend or in a downtrend. A bullish key reversal day occurs in a downtrend when prices form a lower low than the previous day, a higher high, and close above the previous day’s close. Conversely, a bearish key reversal day occurs in an uptrend when prices form a higher high than the previous day, a lower low, and close below the previous day’s close.

Implications:

Although a bullish (bearish) key reversal day has the most predictive value when it takes place at the low (high) of a move, it has no measured move objective per se. It just warns of a potential price reversal and can be confirmed by the break of a key trendline.



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Diamond 37. Diamond Pattern

This relatively rare pattern is the combination of expanding and symmetrical triangles and normally appears as price action forms a market top.

Implications:

This pattern is often a reversal pattern and is completed when the lower support trendline is broken. The measured move objective is the height of the pattern from its widest point, projected from the breakout point.


38. Common Fibonacci Retracement Ratios Fibonacci Retracement Ratios

Once a reversal pattern is confirmed, technicians often apply Fibonacci retracement ratios in order to assess how far a potential retracement may progress. These ratios utilize mathematical relationships that deal with a numerical sequence.

Implications:

The most common ratios to watch for are: 38.2% retracement, 50% retracement, 61.8% retracement and 100% retracement.



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Candlestick Patterns 39. Candlestick Chart

Candlestick Chart

As discussed on page 2, the candlestick chart consists of plotting the open, high, low and closing values for an instrument – with special emphasis given to the opening and closing values. The difference between the opening and closing values forms the candle and is termed the “real body”, with up days representing a hollow real body (green in our charts) and down days representing a black solid body (red in our charts). The wicks that protrude above and below the real body are termed “upper shadows” and “lower shadows” respectively and these price extremes represent the high and low prices for the period in question.

UPPER SHADOW

OPEN

REAL BODY

CLOSE

LOWER SHADOWImplications: A different chart format that is gaining in popularity. Single or multiple candlesticks can be used in order to identify reversal or continuation patterns.


Reversal Patterns

Doji

A doji pattern is formed when the open and closing prices occur at roughly the same level. Hence this candlestick pattern does not feature a significant real body per se.

Implications: The lack of a real body indicates market indecision in a bullish or bearish trend. As such, the doji pattern can serve as a bearish reversal pattern in an uptrend, or a bullish reversal pattern in a downtrend. Figure 40 presents an example of a bearish doji pattern in an uptrend – as the indecision produces a pronounced trend change.

Gravestone Doji

A doji pattern that is formed when the open and closing prices occur at roughly the same level at the low for the period in question. The longer the upper shadow, the more bearish the signal. Note that this pattern is only bearish in nature.

Implications: Indicates not only market indecision in an uptrend but also a more pronounced bearish reversal pattern. The sharp rejection of a new high, coupled with the inability of prices to close clearly higher on the day amplifies the bearish undertones of this pattern.

40. Doji Pattern - Bearish


41. Gravestone Doji Pattern



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Dragonfly Doji 42. Dragonfly Doji Pattern A doji pattern that is formed when the open and closing prices occur at roughly the same level but the doji occurs at the upper end of the trading range. Hence, the low is significantly below the level where the doji forms. Note that this pattern is only bullish in nature.

Implications: Indicates not only market indecision in a downtrend but also a more pronounced bullish reversal pattern. The sharp rejection of a new low, coupled with the inability of prices to close clearly lower on the day amplifies the bullish undertone of this pattern.


43. Shooting Star Pattern Shooting Star

A candle pattern that develops after an uptrend and features a long upper shadow along with a small (or no) lower shadow. The pattern is also comprised of a very small real body that forms near the low for that time period.

Implications: The sharp rejection of a new cyclical high and the close near the bottom end of the trading range indicates that a shift in market sentiment has taken place. Often the subsequent penetration of a support level will affirm the bearish implications of this pattern.


44. Morning Star Pattern

Morning Star

A pattern that comprises three candlesticks. The first features a long bearish real body as prices accelerate lower in a downtrend. The second features a very small real body that gaps lower, followed by the third candle that features a strong rally that closes above the mid-point of the first candle.

Implications: The first day of price action reinforces the overall bearish trend. However, the formation of a star on the second day, with a small real body, indicates a potential change in sentiment. This is magnified by the third candle, which produces a strong countertrend rally and closes above the mid-point of the first day. The penetration of a resistance level will often confirm the bullish implications of this pattern. If the star is a doji, this pattern is termed a morning doji star.



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Evening Star 45. Evening Star Pattern

The opposite of the morning star pattern. A pattern that also features three candles, with the first representing a long bullish real body as prices accelerate higher in an uptrend. The second day features a small real body that gaps higher, followed by a third candle that features a strong selloff that closes below the mid-point of the first candle.

Implications: The first day of price action reinforces the overall bullish trend. However, the formation of a star on the second day, with a small real body, indicates a potential change in sentiment. This is magnified by the third candle, which produces a strong countertrend selloff and closes below the mid-point of the first day. The penetration of a support level will often confirm the bullish implications of this pattern. If the star is a doji, this pattern is termed an evening doji star.


46. Hammer Pattern Hammer

A hammer pattern features a small real body with a very long lower shadow. The real body forms at the top of the trading range and can be solid or hollow (red or green).

Implications: This is a bullish pattern if it occurs after a pronounced downtrend. The lower shadow should be 2 to 3 times the height of the real body in order to increase the accuracy of the pattern. Note that the sharp rejection of the new low indicates a potential change in market sentiment that is later confirmed by the penetration of resistance. The opposite of the hammer pattern is the hanging man pattern (see below).


47. Hanging Man Pattern Hanging Man

A hanging man pattern also features a small real body with a long lower shadow. The real body forms at the top of the trading range and can be solid or hollow (red or green).

Implications: However, this is a bearish pattern if it occurs after an uptrend has been in place. Note that the small real body suggests the possible loss of upward price momentum that is later confirmed as prices pierce a support level. Ideally, the lower shadow should be 2 to 3 times the height of the real body. The opposite of the hanging man pattern is the hammer pattern (see above).



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Bullish Engulfing Line 48. Bullish Engulfing Pattern A bullish engulfing pattern is comprised of two candlestick lines – a small solid line (red) followed by a large hollow line (green). The hollow body is contained entirely within the solid one – hence the term “engulfing”.

Implications: This is a bullish pattern if it occurs after an identifiable downtrend has been in place. Note that the large hollow real body of the engulfing pattern is bullish in nature – as it denotes a bullish shift in sentiment at the low for the move. The opposite of the bullish engulfing line is the bearish engulfing line (see below).


Bearish Engulfing Line

A bearish engulfing pattern is comprised of two candlestick lines – a small hollow line (green) followed by a large solid (red) line. The hollow body is contained entirely within the solid one – hence the term “engulfing”.

Implications: This is a bearish pattern if it occurs after an identifiable uptrend has been in place. Note that the large solid real body of the engulfing pattern is bearish in nature – as it denotes a bearish shift in sentiment at the high for the move. The opposite of the bearish engulfing line is the bullish engulfing line (see above).

Piercing Line

A piercing line pattern is also comprised of two candlestick lines – a long solid line (red) followed by a large hollow (green) line. The second candle features an open that is below the low of the prior day – but the close is more that half way above the prior day’s real body.

Implications: This is a bullish pattern in a downtrend, as prices are not able to sustain the downward price momentum despite opening below the prior day’s low. As such, a change in market sentiment may be underway. The opposite of the piercing line is the ominous sounding dark cloud cover (see page 18).

49. Bearish Engulfing Pattern


50. Piercing Line Pattern



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Dark Cloud Cover 51. Dark Cloud Cover Pattern A dark cloud cover pattern is comprised of two candlestick lines – a long hollow line (green) followed by a solid (red) line. The second candle features an open that is above the high of the prior day – but the close is below the mid-point the prior day’s real body.

Implications: This is a bearish pattern in an uptrend, as prices are not able to sustain the upward price momentum despite opening above the prior day’s high. As such, a change in market sentiment may be underway. The opposite of the dark cloud cover pattern is the piercing line (see page 17).


Bullish Harami/Harami Cross

A bullish harami pattern is comprised of a long solid line (red) followed by a smaller hollow (green) line that falls within the real body of the prior day. The harami cross pattern features the same characteristics as above, except that a doji pattern forms on the second day – with the doji falling within the real body of the prior day.

Implications: This is a bullish pattern in a downtrend, as the second day’s price action signals a sharp decline in downward price momentum. The Harami cross pattern is considered as a bullish reversal pattern as market indecision later leads to a trend change.

Bearish Harami/Harami Cross

A bearish harami pattern is comprised of a long hollow line (green) followed by a smaller solid (red) line that falls within the real body of the prior day. The harami cross pattern features the same characteristics as above, except that a doji pattern forms on the second day – with the doji falling within the real body of the prior day.

Implications: This is a bearish pattern in an uptrend, as the second day’s price action signals a sharp decline in upward price momentum. The Harami cross pattern is considered as a bearish reversal pattern as market indecision later leads to a trend change.

52. Bullish Harami Pattern


53. Bearish Harami Pattern



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Tweezer Bottoms 54. Tweezer Bottom Pattern A tweezer bottom takes place when two (or more) candlesticks form price bottoms at the same level. The real bodies can be hollow (greed) or solid (red) and the candlesticks do not necessarily have to form on consecutive days.

Implications: Although only a minor reversal pattern, the formation of two price lows at roughly the same level indicates an area of support in the market (where demand overcomes supply). Therefore, this area is likely to trigger a rally in prices.


55. Tweezer Top Pattern Tweezer Tops

A tweezer top takes place when two (or more) candlesticks form a price top at the same level. The real bodies can be hollow (greed) or solid (red) and the candlesticks do not necessarily have to form on consecutive days.

Implications: Although only a minor reversal pattern, the formation of two price highs at roughly the same level indicates an area of resistance in the market (where supply is greater than demand). This area is likely to trigger a selloff in prices.


56. Three River Bottom Pattern Three River Bottom

A candlestick pattern of a longer duration that features three price bottoms that form at approximately the same level. This pattern is similar in form to the triple bottom pattern in traditional technical analysis methodology.

Implications: With demand overcoming supply near the same price level each time, a strong level of support is formed where the market feels comfortable accumulating long positions. This support indicates bullish market sentiment and warns of the potential building of a base and eventual reversal of a downtrend.



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Three Mountain Top 57. Three Mountain Top Pattern

A candlestick pattern of a longer duration that features three price tops that form at approximately the same price level. This pattern is similar in form to the triple top pattern in traditional technical analysis methodology.

Implications: With supply overcoming demand near the same price level each time, a strong level of resistance is formed where the market feels comfortable accumulating short positions. This resistance indicates bearish market sentiment and warns of the potential building of a top and eventual reversal of an uptrend.


58. Inverted Three Buddha Pattern Inverted Three Buddha

A variation of the three river bottom pattern (see page 19)– where the middle river is the lowest of the three price troughs. This pattern is similar in form to the inverted head and shoulders pattern in traditional technical analysis methodology.

Implications: With demand overcoming supply as a downtrend loses momentum, the failure to establish a new low at the third price trough demonstrates an erosion of bearish market sentiment or psychology. The subsequent break above an important resistance level confirms the bearish implications of this pattern.


Three Buddha 59. Three Buddha Pattern

A variation of the three mountain top pattern (see above)– where the middle mountain is the tallest (highest) of the three peaks. This pattern is similar in form to the head and shoulders pattern in traditional technical analysis methodology.

Implications: With supply overcoming demand as an uptrend loses momentum, the failure to establish a new high at the third price top demonstrates an erosion of bullish market sentiment or psychology. The subsequent break below an important support level confirms the bearish implications of this pattern.



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Continuation Patterns 60. Rising Window Pattern

Rising Window

A rising window pattern is similar to the gap in Western technical terminology. A rising window occurs when prices open above the prior day’s high and continue to trade higher.

Implications: This pattern is a continuation pattern, as a window that opens to the upside is a bullish signal. In addition, the window area should serve as support under such circumstances.


Falling Window

A falling window pattern is also similar to the gap in Western technical terminology. This pattern occurs when prices close below the prior day’s low and continue to trade lower.

Implications: This pattern is a continuation pattern, as a window that opens to the downside is a bearish signal. In addition, the window area should serve as resistance under such circumstances.

61. Falling Window Pattern



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NOTES:

All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of thecompensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. RBC Capital Markets’ policy for managing conflicts of interest in relation to investment research is available from us on request and is made available onour website at http://www.rbccm.com/cm/file/0,,63022,00.pdf. We reserve the right to amend or supplement this policy at any time. For the current policy, please check ourwebsite.

Additional Disclosures The information contained in this report has been compiled by RBC Capital Markets (“RBC CM”) from sources believed to be reliable, but no representation or warranty,express or implied, is made by Royal Bank of Canada, RBC CM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC Capital Markets isa business name used by subsidiaries of the Royal Bank of Canada including RBC Dominion Securities Inc., RBC Capital Markets Corporation, Royal Bank of CanadaEurope Limited and Royal Bank of Canada - Sydney Branch. All opinions and estimates contained in this report constitute RBC CM’s judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buyany securities. RBC CM and its affiliates may have an investment banking or other relationship with some or all of the issuers mentioned herein and may trade in any of thesecurities mentioned herein either for their own account or the accounts of their customers. Accordingly, the entities constituting RBC CM or their affiliates may at any time have a long or short position in any such security or option thereon. Every province in Canada, state in the U.S., and most countries throughout the world have their ownlaws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securitiesdiscussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act assecurities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in thatjurisdiction. This material is prepared for general circulation to clients and does not have regard to the particular circumstances or needs of any specific person who mayread it. To the full extent permitted by law neither RBC CM or any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the priorconsent of RBC CM. The entities comprising RBC Capital Markets are wholly owned subsidiaries of the Royal Bank of Canada and are members of the RBC FinancialGroup.

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